Profit before tax from continuing operations up 44.6% to 45.1m (1H 2016: 31.2m)

Transcription

1 03 August 2017 esure Group plc interim results for the six months ended 30 June 2017 An excellent first half with growth in premiums, policies and profits Highlights Gross written premiums up 22.8% to 393.3m ( 2016: 320.4m) In-force policies up 8.8% to million ( 2016: million) Profit before tax from continuing operations up 44.6% to 45.1m ( 2016: 31.2m) Combined operating ratio improved 2.6ppts to 96.6% ( 2016: 99.2%) Interim dividend of 4.1p per share ( 2016: 3.0p per share) reflects a payout ratio of 70% of earnings per share, inclusive of a 20% special dividend Solvency coverage (1) at 153% (FY 2016: 152%) Sir Peter Wood, Chairman, said: esure has performed very well in the first half of the year as the Management team continues to drive the Group s profitable growth strategy. Our solid capital position has led the Board to declare an interim dividend of 4.1 pence per share, which includes a special dividend, at the same time as allowing esure to retain sufficient capital and flexibility to continue to pursue our profitable growth ambitions. Stuart Vann, Chief Executive Officer, said: I am delighted with our performance in the first half of We have delivered strong growth in premiums, policies and profits as the success and momentum of our footprint expansion programme and disciplined underwriting continues to drive the business forward. In Motor, we are growing across all our customer segments, demonstrating the value and service proposition we offer to customers. I am really pleased with the outcome of our reinsurance renewal on 1 July which is testament to our focused underwriting approach and strong relationships with our reinsurance panel. As indicated earlier in the year, we have increased prices in the first half of the year which mitigate this increased cost to the business, whilst continuing to grow. Overall, it has been a great start to 2017, and we are firmly on track to deliver results at the positive end of our 2017 guidance.

2 For further information: Chris Wensley Head of Investor Relations & Corporate Strategy t: e: Chris Barrie/Grant Ringshaw Citigate Dewe Rogerson t: e: Note 1. Solvency coverage is the Group s Own Funds divided by its Solvency Capital Requirement. The capital coverage for 2017 is estimated and unaudited. The Group s coverage ratio includes adjustments, which in aggregate, if an adjustment was not made, would increase the Group s interim coverage ratio compared to the position as at the year end. These primarily relate to timing differences in respect of the Group s interim dividend and the loss absorbing capacity of deferred taxes. Were the Group not to adjust for these seasonal factors, the coverage ratio would be 157%. About esure Group plc esure Group plc is an efficient, customer-focused personal lines insurer, founded in 2000 by Chairman, Sir Peter Wood, Britain s foremost general insurance entrepreneur. The Group is one of the UK s leading providers of Motor and Home insurance products through the esure and Sheilas Wheels brands. Cautionary statement Certain statements made in this announcement are forward-looking statements. Such statements are based on current expectations and assumptions and are subject to a number of known and unknown risks and uncertainties that may cause actual events or results to differ materially from any expected future events or results expressed or implied in these forward-looking statements. Persons receiving this announcement should not place undue reliance on forward-looking statements. Unless otherwise required by applicable law, regulation or accounting standard, the Group does not undertake to update or revise any forward-looking statements, whether as a result of new information, future developments or otherwise. Disclaimer This announcement contains inside information which is disclosed in accordance with the Market Abuse Regulation which came into effect on 3 July The esure Group plc LEI number is KOI3F5LM54PT80. esure Group plc 2017 Interim Results 2

3 Review of 2017 Group Gross written premiums () In-force policies (millions) Trading profit from continuing operations () Profit before tax from continuing operations () Earnings per share from continuing operations (pence) Dividend per share (pence) Combined operating ratio (%) Loss ratio (%) Expense ratio (%) Investment return gross (%) Solvency coverage (%) (1) (1) The 2016 solvency coverage has not been adjusted. Motor Gross written premiums () In-force policies (millions) Combined operating ratio (%) Loss ratio Expense ratio Trading profit () Underwriting Non-underwritten additional services Investments Gross written premiums increased 27.4% to 351.3m ( 2016: 275.7m) through a combination of positive rating actions and in-force policy growth. In-force policies increased by 16.4% to million ( 2016: million) as the Group s core and footprint expansion segments all grew in the first half of the year. Trading profit of 48.1m is 40.2% higher than 2016 ( 34.3m) through an improvement in the underwriting and non-underwritten additional services revenues performance. The underwriting result improved as the Group s positive rating actions earn through ahead of claims inflation, and this is reflected in the improvement in the current year net loss ratio of 76.6% ( 2016: 82.2%). Favourable development of prior accident year reserves of 11.0m equated to 4.0% of net earned premiums ( 2016: 13.0m; 5.8%) Reported net loss ratio (%) Prior year reserve releases (%) Current accident year net loss ratio (%) Non-underwritten additional services revenues increased 26.1% to 30.0m ( 2016: 23.8m) largely driven by higher instalment income, where higher average written premiums year-on-year and growth in overall policy count in the first half of 2017 increased income. esure Group plc 2017 Interim Results 3

4 Home Gross written premiums () In-force policies (thousands) Combined operating ratio (%) Loss ratio Expense ratio Trading profit () Underwriting (2.0) (2.3) Non-underwritten additional services Investments Gross written premiums reduced 6.0% to 42.0m ( 2016: 44.7m) as a result of disciplined underwriting in challenging market conditions. In-force policies are 11.0% lower at 517,000 ( 2016: 581,000) as the Group increased prices ahead of the wider market as it looked to mitigate against rising claims inflation. Trading profit is 21.4% higher at 3.4m ( 2016: 2.8m) largely driven by an improvement in the nonunderwritten additional services revenues. The underwriting loss of 2.0m reflects the soft rating environment earning through in combination with claims inflation, in particular relating to escape of water claims as noted by the wider market. The first half performance has benefited from a benign period of weather compared to the first half of 2016 when the Group incurred 5.0m of adverse weather claims. Favourable development of prior accident year reserves of 3.7m equated to 9.0% of net earned premiums ( 2016: 7.5m; 17.9%) Reported net loss ratio (%) Prior year reserve releases (%) Current accident year net loss ratio (%) The expense ratio of 43.3% is 4.6ppts higher than the first half of 2016 primarily due to a full period cost of the Flood Re Levy that was introduced on 1 April Non-underwritten additional services revenues increased 11.6% to 4.8m due to an improvement in the performance of non-underwritten additional insurance products and higher instalment income. Additional services revenues Non-underwritten additional insurance products Policy administration fees and other income Claims income Instalment income Non-underwritten additional services Underwritten additional insurance products Total income from additional services Motor Home Non-underwritten additional services trading profit Motor Home ASR per IFP Motor ASR per IFP Home esure Group plc 2017 Interim Results 4

5 Total income from additional services increased 14.4% to 58.9m ( 2016: 51.5m) driven by a strong performance across all income lines. Non-underwritten additional services trading profit increased 23.8% to 34.8m ( 2016: 28.1m) ahead of the Group s in-force policy growth. Investments Investment income Net gains on investments Investment charges (2.1) (1.5) Net investment return Other income Total investment return Investment return Gross (%) Investment return Net (%) The Group achieved a gross investment return of 0.9% ( 2016: 1.0%) and a net investment return of 0.7% ( 2016: 0.8%). The net investment return was slightly lower year-on-year at 5.7m ( 2016: 6.1m) with performance tailing off towards the end of the period following a marked steepening in the UK yield curve. Net gains on investments include a one-off realised gain of 2.0m as the Group partially disposed of its long dated Gilt to ensure an appropriate matching between assets and liabilities under Solvency II. This is not expected to repeat in the second half of Other income was lower at 0.2m ( 2016: 0.7m). Trading profit Trading profit from continuing operations Motor Home Trading profit from discontinued operations Gocompare.com Trading profit from continuing operations, being earnings before interest, tax, non-trading expenses and amortisation of acquired intangible assets, is management's measure of the overall profitability of the Group's operating activities. The Group's reportable segments are Motor and Home and these delivered a trading profit of 51.5m ( 2016: 37.1m). The Group generated a trading profit from discontinued operations (Gocompare.com) of nil ( 2016: 13.2m). Gocompare.com was demerged from the Group on 3 November Reconciliation of trading profit from continuing operations to profit before tax from continuing operations Trading profit from continuing operations Non-trading costs (1.0) (0.4) Finance costs (4.3) (4.3) Amortisation of acquired intangible assets (1.1) (1.2) Profit before tax from continuing operations esure Group plc 2017 Interim Results 5

6 The Group incurred 4.3m in finance costs ( 2016: 4.3m) relating to the 125.0m of 6.75% ten year tier two Subordinated Notes issued on 19 December 2014 ( the Notes ). Profit after tax Profit after tax from continuing operations The Group s profit after tax from continuing operations increased 43.1% to 36.5m ( 2016: 25.5m) largely driven by an improvement in the underwriting and non-underwritten additional service revenues performance. Profit after tax from discontinued operations The Group generated a profit after tax from discontinued operations (Gocompare.com) of nil ( 2016: 5.2m). Gocompare.com was demerged from the Group on 3 November Earnings per share Earnings per share Earnings per share increased 17.6% to 8.7 pence ( 2016: 7.4 pence). Earnings per share from continuing operations Earnings per share from continuing operations increased by 42.6% to 8.7 pence ( 2016: 6.1 pence) in line with the increase in profit after tax from continuing operations. Dividend per share An interim dividend of 4.1 pence per share ( 2016: 3.0 pence per share) has been declared and approved by the Board. The interim dividend is comprised of a base dividend of 2.9 pence per share and a special dividend of 1.2 pence per share. The dividend has been set with reference to the Group s profit after tax and allows for the approximate proportion of one-third (interim dividend) and two-thirds (final dividend), respectively. The ex-dividend date is 31 August 2017, the record date is 1 September 2017 and the payment date is 13 October These dates are in respect of both the base and special interim dividend. Cash flow Profit after tax Net cash generated from: Operating activities Investing activities (3.4) (5.2) Financing activities (48.0) (34.6) Net increase / (decrease) in cash and cash equivalents 9.9 (3.0) Cash and cash equivalents at the beginning of the year Cash and cash equivalents at the end of the period The Group s cash and cash equivalents at the end of the period are 35.4m ( 2016: 28.9m). Operating activities were a net inflow of 61.3m ( 2016: 36.8m) largely driven by the Group s strong premium growth in the first half of the year. esure Group plc 2017 Interim Results 6

7 Investing activities were a net outflow of 3.4m ( 2016: 5.2m) and reflects the Group s investment in property, plant, equipment and software. Financing activities were a net outflow of 48.0m ( 2016: 34.6m) and includes the Group s 2016 final dividend that was paid in May 2017 of 43.9m ( 2016: 30.4m). The Group s cash flow statement can be found on page 14. Investments The Group deploys a conservative investment strategy, with the primary objectives of capital preservation and maintaining liquidity. Through better alignment of the investment and liability durations, the Group is able to deliver appropriate returns while minimising earnings and capital volatility. Strategic investment allocations The Group s investment portfolio is in the process of transitioning towards the following strategic asset allocations and target returns. The Group s target allocations and target returns are outlined below: Investment categories Target allocations Gross target returns Cash & Liquidity 5% 0.1% Claims backed 65% 1.0% Surplus 30% 3.0% As at the 30 June 2017 the Group held the following investments: 2017 FY 2016 % % Total Cash & Liquidity 7% % 45.5 Liquidity funds Cash Claims backed 62% % Liquidity funds Fixed income Surplus 31% % Liquidity funds Equity Fixed income The Group s total assets under management are 5.8% higher at 912.7m (FY 2016: 862.9m including derivative financial liabilities) reflecting the Group s strong premium growth in the period. The Cash & Liquidity portfolio is accessible cash for operational activities and is inclusive of a buffer for adverse events. The allocation of 7% is in line with the Board approved liquidity risk appetite. The Claims backed portfolio is constructed with reference to the expected future cost of the Group s technical liabilities, as defined under Solvency II. The Group continues to designate newly acquired assets as available-for-sale ( AFS ) to minimise the impact of interest rate changes on earnings. As at 30 June 2017 the Group has designated 297.2m as AFS and 266.5m as fair value through profit and loss. The Surplus portfolio seeks to deliver returns while investing in a manner that reflects the Group s risk appetite, in particular with reference to its solvency capital. The strategic asset allocation review continues and the Group expects to allocate surplus liquidity funds on a prudent basis in due course. The remaining assets are invested across a mixture of fixed income and equities. The Group s total investment duration was 2.4 years (FY 2016: 2.6 years) and the Group continues to take a proactive approach to match its asset and liability durations under Solvency II. esure Group plc 2017 Interim Results 7

8 Fixed income FY Total fixed income Corporate bonds Covered / residential mortgage backed securities Government bonds Floating rate notes Fixed income credit risk quality 2017 % FY 2016 % AAA AA A BBB Below BBB or not rated 10 9 The credit risk quality of the fixed income portfolio remains strong with 65% held in assets rated A or above. Reserving The Group holds claims reserves, to cover the future cost of settling claims that have been incurred but not settled at the balance sheet date, whether already known to the Group or not yet reported, net of associated reinsurance recoveries. For known periodic payment orders ( PPOs ) and potential PPO awards, indexed cash flow projections are carried out in order to estimate an ultimate cost on a gross and net of reinsurance basis. The Group currently has 10 PPOs. The cash flow projections were undertaken on a discounted basis. Due to the inherent uncertainties in reserving, the Group adopts a prudent approach to reserving through reserving in excess of the actuarial best estimate. Over time the inherent uncertainties in the actuarial best estimate reduce and the Group releases the margin above the best estimate. The Group s current reserve margin is comfortably in excess of its actuarial best estimate. On 27 February 2017, the Lord Chancellor changed the Ogden discount rate from plus 2.5% to minus 0.75%, effective 20 March The impact of this change on the Group s 2017 performance was not material. The Group benefited from strong favourable development of prior accident year reserves, with total prior year releases of 14.7m in 2017 ( 2016: 20.5m). The favourable development represents 4.6% of net earned premium ( 2016: 7.8%). Reinsurance The Group purchases reinsurance as a risk transfer mechanism to mitigate risks that are outside the Group s appetite for individual claim or event exposure and to reduce the volatility caused by large individual and accumulation losses. By doing so, the Group reduces the impact that an event can have on its capital position and its underwriting results in both Motor and Home. Currently, the Group has in place excess of loss reinsurance programmes for its Motor and Home underwriting activities. The purpose of these programmes is to provide cover for both individual large losses, for Motor and Home, and accumulation losses arising from natural and other catastrophe events for Home. Motor and Home reinsurance treaties are in place covering all years in which the Group has underwritten policies in each line of business. The Group s Motor reinsurance treaty was renewed on 1 July 2017: esure Group plc 2017 Interim Results 8

9 Layer Placement 1m x 1m 85% Unlimited x 2m 100% The like-for-like cost increase of the programme was 33%, equating to an increase of 10 per vehicle, as a consequence of the change in the Ogden discount rate in February 2017 from 2.5% to minus 0.75%. The increase in reinsurance costs compares favourably to market estimates and reflects the Group s low risk approach to underwriting, low large loss propensity and strong, long term relationships with its reinsurer panel. The Group has successfully implemented price increases across its Motor portfolio in the first half of the year to help mitigate against the increased cost of reinsurance. The Home treaty was renewed on 1 July 2017 with no material changes to the programme. The Group s reinsurance programmes are reviewed on an annual basis and capital modelling is used to identify the most appropriate structure and risk retention profile, taking into account the Group s business objective of minimising volatility and the prevailing cost and the availability of reinsurance in the market. The Group has no quota share reinsurance or co-insurance arrangements in place. Capital The Group seeks to manage its capital in order to maintain a level of capitalisation and solvency to ensure that regulatory requirements are met with an appropriate buffer and that there is sufficient capital available to fund profitable growth opportunities. The solvency capital requirement ( SCR ) is the level of capital the Group is required to hold to meet its obligations if a 1 in 200 year event were to occur in the next 12 months. The Group s normal operating range of coverage of its SCR is %. The capital surplus above the SCR provides an appropriate level of capital coverage and should enable the Group to continue to meet its regulatory capital requirements. The Group adopts the standard formula to calculate its capital requirements under Solvency II. The Group s capital position, after allowing for the interim dividend, is outlined below: 2017 FY 2016 Own Funds Tier Tier Solvency Capital Requirement Coverage ratio 153% 152% The figures quoted for 2017 are estimated and unaudited. As at 30 June 2017, the coverage ratio of the Group s SCR was 153% (FY 2016: 152%). The Group s coverage ratio includes adjustments, which in aggregate, if an adjustment was not made, would increase the Group s interim coverage ratio compared to the position as at the year end. These primarily relate to timing differences in respect of the Group s interim dividend and the loss absorbing capacity of deferred taxes. Were the Group not to adjust for these factors, the coverage ratio would be 157%. Own Funds comprise Tier 1 and Tier 2 qualifying capital. The Notes meet the qualifying criteria of a Tier 2 capital instrument and qualify up to a maximum of 50% of the SCR. The quality of the Group s capital remains strong with 69% in Tier 1 and 31% in Tier 2. esure Group plc 2017 Interim Results 9

10 Solvency Capital Requirement The Group s SCR allocation by risk type, based upon the undiversified capital requirement, can be seen below: 2017 FY 2016 Underwriting risk 71% 72% Market risk 19% 18% Operational risk 7% 8% Credit risk 3% 2% The main risk driver is underwriting, consisting of premium, reserve and catastrophe risk, reflecting the capital requirements of the core business activities for the Group. Sensitivities The Group s capital structure is positioned to minimise the impact that adverse capital events have on its ability to meet its solvency capital requirements, were they to occur. The adverse capital events below are outlined to demonstrate the Group s capital resilience to such events. Impact on coverage* Motor loss ratio 5ppts worse (9)ppts Yield curve 50bps lower (1)ppts Equities fall 25% (2)ppts Credit spreads widen 50bps (2)ppts 1987 Hurricane (3)ppts * Capital coverage movements are stated after earnings, tax and dividend impact. Dividend Policy The Group s dividend policy is to target a base dividend of 50% of profit after tax and enhance the base dividend with a further special dividend, if the Group has sufficient capital and distributable reserves, after allowing for an appropriate level of capital coverage of the Group s SCR and future growth opportunities. The Board remains committed to returning excess capital to shareholders where it does not believe it can utilise retained capital for further profitable growth. The interim dividend will be paid in October of the relevant financial year and the final dividend in May of the following financial year, in the approximate proportions of one-third and two-thirds respectively. Segmental Reporting In 2017, the Group changed its reportable segments to Motor and Home to reflect the lines of business it underwrites and the contribution they deliver to the Group s performance. In 2016, the Group s reportable segments were: Motor underwriting; Home underwriting; Non-underwritten additional services; Investments; and prior to the demerger of Gocompare.com, Price Comparison. Outlook The Group s 2017 guidance provided in March, assuming stable market conditions and normal weather, was: growth in premiums and in-force policies at 15-20% and 5-10%, respectively; the combined operating ratio to be in the region of 96-98%; and non-underwritten additional services revenues to grow ahead of in-force policies in line with the trend seen in the second half of The Group now expects to deliver results at the positive end of this guidance. The Group s ambition is to grow to 3 million in-force policies by esure Group plc 2017 Interim Results 10

11 Condensed consolidated statement of comprehensive income Reviewed Reviewed Audited 6 months 6 months Year ended ended ended 30 June June Dec 2016 Notes Gross written premiums Gross earned premiums Earned premiums, ceded to reinsurers (25.0) (20.2) (43.1) Earned premiums, net of reinsurance Investment return and instalment interest Other income Total income Claims incurred and claims handling expenses (272.3) (221.0) (509.5) Claims incurred recoverable from reinsurers Claims incurred, net of reinsurance 11 (236.3) (209.3) (435.1) Insurance expenses (69.6) (52.9) (113.3) Other operating expenses (9.0) (8.7) (17.7) Total expenses (314.9) (270.9) (566.1) Finance costs (4.3) (4.3) (8.7) Profit before tax Taxation expense 7 (8.6) (5.7) (13.2) Profit from continuing operations, net of tax Profit from discontinued operations, net of tax Profit attributable to the owners of the parent Other comprehensive income Items that will not be reclassified to profit or loss: Revaluation of land and buildings Tax relating to items that will not be reclassified Items that are or may be reclassified to profit or loss: Available-for-sale financial assets - change in fair value Tax relating to items that are reclassified 0.1 (0.7) (0.3) Total comprehensive income for the period attributable to owners of the parent Earnings per share (pence per share) - ordinary shares, basic ordinary shares, diluted Earnings per share from continuing operations (pence per share) - ordinary shares, basic ordinary shares, diluted The notes on pages 15 to 31 form part of these financial statements. esure Group plc 2017 Interim Results 11

12 Condensed consolidated statement of financial position Reviewed Reviewed Audited As at As at As at 30 June June Dec 2016 Notes Assets Goodwill and intangible assets Deferred acquisition costs Property, plant and equipment Financial investments Reinsurance assets Insurance and other receivables Cash and cash equivalents Total assets 1, , ,484.8 Equity and liabilities Share capital Share premium account Capital redemption reserve Other reserves Retained earnings Total equity Liabilities Insurance contract liabilities 11 1, ,002.3 Borrowings Insurance and other payables Deferred tax liabilities Derivative financial liabilities Current tax liabilities Total liabilities 1, , ,213.3 Total equity and liabilities 1, , ,484.8 The notes on pages 15 to 31 form part of these financial statements. Registered number: esure Group plc 2017 Interim Results 12

13 Condensed consolidated statement of changes in equity Notes Share Capital Share premium redemption Other Retained Total capital account reserve reserves earnings equity 6 months ended 30 June 2017 At 1 January Profit for the year Other comprehensive income Total comprehensive income Transactions with owners Issue of share capital Share-based payments Deferred tax on share-based payments Dividends (43.9) (43.9) Total transactions with owners (40.9) (40.8) At 30 June months ended 30 June 2016 At 1 January Profit for the year Other comprehensive income Total comprehensive income Transactions with owners Share-based payments Deferred tax on share-based payments Dividends (30.4) (30.4) Total transactions with owners (29.4) (29.4) At 30 June Year ended 31 December 2016 At 1 January Profit for the year Other comprehensive income Total comprehensive income Transactions with owners Issue of share capital Share-based payments Deferred tax on share-based payments (0.0) (0.0) Demerger of Gocompare.com (301.8) (301.8) Dividends (42.9) (42.9) Total transactions with owners (342.3) (340.9) At 31 December The notes on pages 15 to 31 form part of these financial statements. esure Group plc 2017 Interim Results 13

14 Condensed consolidated statement of cash flows Reviewed Reviewed Audited 6 months 6 months Year ended ended ended 30 June 30 June 31 Dec Cash flows from operating activities Notes Profit after tax for the period Adjustments to reconcile profit after tax to net cash flows: - Finance costs Depreciation and revaluation of property, plant and equipment Amortisation of intangible assets Share scheme charges Non-cash gain on demerger of Gocompare.com - - (213.6) - Taxation expense Total investment return (7.8) (8.0) (20.7) - Instalment interest (21.8) (17.8) (37.7) - Loss on the disposal of property, plant and equipment Operating cash flows before movements in working capital, tax and interest paid Sales of financial investments Purchase of financial investments (475.5) (176.7) (465.2) Interest, rent and dividends received less investment management expenses on financial investments Instalment interest received Changes in working capital: - Increase in insurance liabilities including reinsurance assets, unearned premium reserves and deferred acquisition costs Increase in insurance and other receivables (32.8) (31.3) (49.3) - Increase in trade and other payables including insurance payables Taxation paid (6.2) (6.7) (17.0) Net cash generated / (used) in operating activities (3.8) Cash flows from investing activities Purchase of property, plant and equipment, and 8, 9 (3.4) (5.2) (8.3) software Net cash outflow from the demerger of Gocompare.com - - (17.4) Net cash used in investing activities (3.4) (5.2) (25.7) Cash flows (used in) / generated from financing activities Proceeds on issue of ordinary shares Interest paid on loans 10 (4.2) (4.2) (8.4) Gocompare.com debt raise Dividends paid 5 (43.9) (30.4) (42.9) Net cash (used in) / generated from financing activities Net increase/(decrease) in cash and cash equivalents (48.0) (34.6) (3.0) (6.4) Cash and cash equivalents at the beginning of the year Cash and cash equivalents at the end of the period The notes on pages 15 to 31 form part of these financial statements. esure Group plc 2017 Interim Results 14

15 Notes to the financial statements For the six months ended 30 June General information esure Group plc is a company incorporated in England and Wales. Its registered office is The Observatory, Reigate, Surrey, RH2 0SG. The nature of the Group's operations is the writing of general insurance for private cars and homes. The Company's principal activity is that of a holding company. All of the Company's subsidiaries are located in the United Kingdom, except for esure S.L.U., which is incorporated in Spain. 2. Accounting policies Basis of preparation These condensed consolidated interim financial statements present the Group s financial information for the six months ended 30 June 2017 and have been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the European Union (EU). They do not include all of the information required for full annual financial statements, and should be read in conjunction with the consolidated financial statements of the Group for the year ended 31 December 2016 which are prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the EU. At a General Meeting on 1 November 2016, the Company's shareholders approved the demerger of Gocompare.com plc ('Gocompare.com') and on 3 November 2016 the demerger was completed. Under IFRS 5 Non-Current Assets Held for Sale and Discontinued Operations there is no impact on the interim financial statements as a result of this demerger, other than a change in the presentation of the results of the Gocompare.com business to discontinued operations in There is no impact on the statement of financial position. These condensed consolidated interim financial statements have been presented in Sterling and rounded to the nearest hundred thousand. Throughout these condensed consolidated financial statements any amounts which are less than 0.05m are shown by 0.0, whereas a dash (-) represents that no balance exists. As required by the FCA s Disclosure and Transparency Rules, the condensed set of financial statements have been prepared applying the accounting policies and presentation that were applied in the preparation of the Group s published consolidated financial statements for the year ended 31 December These condensed consolidated interim financial statements have been prepared on a going concern basis. The Directors have assessed the Group s prospects and viability for the next 12 months and beyond, including cash flow forecasts and regulatory capital surpluses. Based on this robust assessment, the Directors confirm that they have a reasonable expectation that the Group has adequate resources to continue in operational existence for at least the next 12 months. The financial information contained in these interim results does not constitute statutory accounts of esure Group plc within the meaning of Section 435 of the Companies Act Statutory accounts for esure Group plc for the year ended 31 December 2016 have been delivered to the Registrar of Companies. The auditor has reported on the accounts, their report: (i) (ii) (iii) was unqualified; did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report; and did not constitute a statement under Section 498 (2) or (3) of the Companies Act esure Group plc 2017 Interim Results 15

16 Notes to the financial statements For the six months ended 30 June Critical accounting judgements and estimates The Group s 2016 Annual Report and Accounts provide details of significant judgements and estimates used in the application of the Group s accounting policies. There have been no significant changes to the judgements and estimates during the interim period. Key sources of estimation uncertainty and critical judgements in applying the Group's accounting policies Insurance contract liabilities Estimates have to be made both for the expected ultimate cost of claims reported at the reporting date and for the expected ultimate cost of claims incurred but not reported ('IBNR') at the reporting date. It can take a significant period of time before ultimate claims cost can be established with certainty for some types of claims. The ultimate cost of outstanding claims is estimated by carrying out standard actuarial projections. These techniques use past claims information and development patterns of these claims to project the expected future claims cost both for notified and non-notified claims. Similar judgements, estimates and assumptions are employed in the assessment of adequacy of provisions for unearned premium and hence whether there is a requirement for an unexpired risk provision. Please refer to note 11 for additional details. 4. Segmental information Differences to the Group s 2016 annual report and accounts in the basis of segmentation The Group makes decisions on customer acquisition and retention based on contribution. In addition to the underwriting contribution from Motor and Home, a diversified suite of additional insurance products and services provide opportunities to deliver enhanced customer contributions. In order to facilitate the management of the Group the reporting to the Board of Directors has changed and the reportable segments under IFRS 8 Operating Segments reflect this change. The 2016 segments have been restated to reflect the new segmental reporting. Operating segments The Group has two operating segments as described below. These segments are also the Group's reportable segments and represent the manner in which the business is regularly reported to the Group's executive and Board of Directors. Motor underwriting This segment incorporates the revenues and expenses attributable to the Group's Motor insurance underwriting activities inclusive of additional insurance products underwritten by the Group and related non-underwritten additional services. Investment income is allocated to the segment on the basis of premium income. Home underwriting This segment incorporates the revenues and expenses attributable to the Group's Home insurance underwriting activities and related non-underwritten additional services. Investment income is allocated to the segment on the basis of premium income. esure Group plc 2017 Interim Results 16

17 Notes to the financial statements For the six months ended 30 June Segmental information (continued) Segmental revenues, expenses and other information An analysis of the Group's results by reportable segment is shown below: Reviewed Six months ended 30 June 2017 Continuing operations Motor Home total Gross written premiums Earned premiums, net of reinsurance Investment income Instalment interest income Other income Total income Net incurred claims (200.1) (25.4) (225.5) Claims handling costs (9.3) (1.4) (10.7) Insurance expenses (53.3) (16.3) (69.6) Other operating expenses (6.3) (0.7) (7.0) Total expenses (269.0) (43.8) (312.8) Trading profit Amortisation of acquired intangibles Non-trading costs Finance costs (1.1) (1.0) (4.3) Profit before taxation Tax expense 45.0 (8.6) Profit after taxation 36.5 Net expense ratio 22.7% 43.1% 25.4% Net loss ratio 72.7% 61.6% 71.2% Combined operating ratio 95.3% 104.7% 96.6% esure Group plc 2017 Interim Results 17

18 Notes to the financial statements For the six months ended 30 June Segmental information (continued) Segmental revenues, expenses and other information (continued) Reviewed Six months ended 30 June 2016 (restated) Continuing operations Motor Home total Gross written premiums Earned premiums, net of reinsurance Investment income Instalment interest income Other income Total income Net incurred claims (170.1) (28.0) (198.1) Claims handling costs (9.4) (1.8) (11.2) Insurance expenses (38.5) (14.4) (52.9) Other operating expenses (6.5) (0.6) (7.1) Total expenses (224.5) (44.8) (269.3) Trading profit Amortisation of acquired intangibles (1.2) Non-trading costs (0.4) Finance costs (4.3) Profit before taxation 31.2 Tax expense (5.7) Profit after taxation 25.5 Net expense ratio 21.5% 38.7% 24.3% Net loss ratio 76.4% 66.8% 74.9% Combined operating ratio 97.9% 105.5% 99.2% esure Group plc 2017 Interim Results 18

19 Notes to the financial statements For the six months ended 30 June Segmental information (continued) Segmental revenues, expenses and other information (continued) Reviewed Year ended 31 December 2016 (restated) Continuing operations Motor Home total Gross written premiums Earned premiums, net of reinsurance Investment income Instalment interest income Other income Total income Net incurred claims Claims handling costs Insurance expenses Other operating expenses Total expenses (356.4) (55.6) (412.0) (19.5) (3.6) (23.1) (85.8) (27.5) (113.3) (13.4) (1.1) (14.5) (475.1) (87.8) (562.9) Trading profit Amortisation of acquired intangibles Non-trading costs Finance costs (2.3) (0.9) (8.7) Profit before taxation from continuing operations Tax expense Profit after taxation from continuing operations 72.7 (13.2) 59.5 Net expense ratio 22.4% 36.9% 24.6% Net loss ratio 75.7% 66.0% 74.2% Combined operating ratio 98.1% 102.9% 98.8% 5. Dividends During the six months ended 30 June 2017, a dividend per share of 10.5p ( 43.9m) was declared by the Board of Directors as a final dividend for the year ended 31 December Subsequent to 30 June 2017, an interim dividend per share of 4.1p ( 17.1m) has been declared by the Board of Directors (2016: interim dividend per share of 3.0p ( 12.5m)). esure Group plc 2017 Interim Results 19

20 Notes to the financial statements For the six months ended 30 June Earnings per share Basic Basic earnings per share is calculated by dividing the earnings attributable to the owners of the Group and the weighted average of Ordinary Shares in issue during the period, excluding Ordinary Shares held as employee trust shares. A calculation is also shown based on the earnings from continuing operations attributable to the owners of the Group. Diluted Diluted earnings per share is calculated by dividing the earnings attributable to the owners of the Group by the weighted average of Ordinary Shares in issue during the period adjusted for any dilutive potential Ordinary Shares. A calculation is also shown based on the earnings from continuing operations attributable to the owners of the Group. The difference between the basic and diluted weighted average number of shares outstanding during the year, being 5,428,444 (31 December 2016: 2,009,742; 30 June 2016: 1,370,598), relates to the dilutive potential of the share-based payment arrangements. Reviewed Reviewed Audited 6 months 6 months Year ended ended ended 30 June June Dec 2016 Profit after taxation Weighted average number of Ordinary Shares (million) - basic Unadjusted earnings per share - basic (pence) Weighted average number of Ordinary Shares (million) - diluted Unadjusted earnings per share - diluted (pence) Continuing operations earnings per share Reviewed Reviewed Audited 6 months 6 months Year ended ended ended 30 June June Dec 2016 Profit from continuing operations, net of tax Weighted average number of Ordinary Shares (million) - basic Earnings per share from continuing operations - basic (pence) Weighted average number of Ordinary Shares (million) - diluted Earnings per share from continuing operations - diluted (pence) esure Group plc 2017 Interim Results 20

21 Notes to the financial statements For the six months ended 30 June Earnings per share (continued) Discontinued operations earnings per share Reviewed Reviewed Audited 6 months 6 months ended ended Year ended 30 June June Dec 2016 Profit from discontinued operations, net of tax Weighted average number of Ordinary Shares (million) - basic Earnings per share from discontinued operations - basic (pence) Weighted average number of Ordinary Shares (million) - diluted Earnings per share from discontinued operations - diluted (pence) 7. Taxation The Group incurred an effective tax rate of 19.1% in the six months ended 30 June 2017 (30 June 2016: 18.3%; 31 December 2016: 18.2%) on continuing operations. The prevailing UK tax rate at 30 June 2017 is 19%. 8. Goodwill and intangible assets Reviewed Acquired Customer Goodwill Software brands relationships Total Cost As at 1 January Additions in the year Disposals in the year - (0.2) - - (0.2) Demerger of Gocompare.com (127.7) (1.7) (40.9) (10.2) (180.5) As at 31 December Additions in the period Disposals in the period As at 30 June Accumulated amortisation and impairment As at 1 January Amortisation for the year Disposals in the year - (0.2) - - (0.2) Demerger of Gocompare.com - (1.1) (12.9) (8.1) (22.1) As at 31 December Amortisation for the period Disposals in the period As at 30 June Net book value As at 31 December As at 30 June esure Group plc 2017 Interim Results 21

22 Notes to the financial statements For the six months ended 30 June Property, plant and equipment Fixtures, Reviewed Land and fittings and buildings equipment Total Cost As at 1 January Additions in the year Demerger of Gocompare.com - (2.3) (2.3) Disposals in the year - (1.5) (1.5) Revaluation of land and buildings As at 31 December Additions in the period Disposals in the period As at 30 June Accumulated depreciation As at 1 January Depreciation for the year Demerger of Gocompare.com - (0.9) (0.9) Disposals in the year - (1.1) (1.1) Revaluation of land and buildings (0.1) - (0.1) As at 31 December Depreciation for the period Disposals in the period As at 30 June Carrying amount As at 31 December As at 30 June Financial assets and liabilities Financial assets Reviewed As at Reviewed As at Audited As at 30 June June Dec 2016 Financial investments designated at FVTPL: Shares and other variable yield securities and units in unit trusts Debt securities and other fixed income securities Deposits with credit institutions Financial investments held for trading: Derivative financial instruments Financial investments at FVTPL AFS financial assets: Debt securities and other fixed income securities Shares in unquoted equity investments Total financial investments: Loans and receivables: Insurance and other receivables Cash and cash equivalents Total financial assets 1, ,062.7 esure Group plc 2017 Interim Results 22

23 Notes to the financial statements For the six months ended 30 June Financial assets and liabilities (continued) Financial assets (continued) Investments bearing credit risk and cash and cash equivalents, are summarised below, together with an analysis by credit rating as at the reporting date: Reviewed Reviewed Audited As at As at As at 30 June June Dec 2016 Derivative financial instruments Debt securities Deposits with credit institutions Cash and cash equivalents Investments bearing credit risk and cash and cash equivalents AAA AA A BBB Below BBB or not rated Investments bearing credit risk and cash and cash equivalents Shares and other variable yield securities and units in unit trusts do not bear credit risk. Cash and cash equivalents are "A" rated. The Group's allocation to BBB assets has increased in the period as the Group continues to implement outcomes from its recent strategic asset allocation review which aims to deliver efficient risk adjusted returns. The movement in the AFS assets consists of: AFS assets held at start of period Additions in period/year Fair value gains in other comprehensive income Fair value gains reclassified to profit and loss on disposal AFS assets held at reporting date Reviewed Reviewed Audited As at As at As at 30 June June Dec In accordance with the Group s investment strategy additional assets acquired during the period with a fair value of 103.7m were designated as AFS. During the period, in order to maintain an appropriate match between the Group's claims backing assets and liabilities, certain assets held as AFS were disposed of. Upon disposal, a fair value gain of 1.6m was recycled to the profit and loss statement. esure Group plc 2017 Interim Results 23

24 Notes to the financial statements For the six months ended 30 June Financial assets and liabilities (continued) Financial liabilities Reviewed Reviewed Audited As at As at As at 30 June June Dec 2016 Financial liabilities held for trading: Derivative financial instruments Other financial liabilities: Borrowings (see below) Insurance and other payables Total financial liabilities Reviewed Reviewed Audited As at As at As at 31 Dec June Dec 2016 Borrowings 10 year Subordinated Notes Total borrowings Derivative financial instruments are due within one year Fair value estimation In accordance with IFRS 13 Fair Value Measurement financial instruments reported at fair value and revalued properties have been categorised into a fair value measurement hierarchy as follows: Quoted prices (unadjusted) in active markets for identical assets or liabilities - (Level 1) Inputs to Level 1 fair values are quoted prices (unadjusted) in active markets for identical assets. An active market is a market in which transactions for the asset occur with sufficient frequency and volume to provide pricing information on an ongoing basis. Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (as prices) or indirectly (derived from prices) - (Level 2). Fair value measurements that are derived from inputs other than quoted prices included in Level 1, if all significant inputs required to fair value an instrument are observable, would result in the instrument being included in Level 2. The majority of assets classified as Level 2 are over-thecounter corporate bonds, where trades are less frequent owing to the nature of the assets. Inputs used in pricing the Group's level 2 assets include: quoted prices for similar (i.e not identical) assets in active markets; quoted prices for identical or similar assets in markets that are not active, the prices are not current, or price quotations vary among market makers, or in which little information is released publicly; inputs that are derived principally from, or corroborated by, observable market data by correlation; and for forward exchange contracts, the use of observable forward exchange rates at the balance sheet date, with the resulting value discounted back to present value. The Group's policy, should there be a change to the valuation techniques or level of activity in the market in which that asset is traded, is to transfer the asset between levels effective from the beginning of the reporting period. In line with the requirements of IFRS 13 Fair Value Measurement, the Group classifies all debt securities as Level 2 assets with the exception of Government backed securities which are classified as Level 1 unless they are illiquid. There have been no changes in respect of the categorisation of debt securities between Levels 1 and 2 during the period. esure Group plc 2017 Interim Results 24